Eighteen months ago I wrote about
leaders and it was referenced as one of my better
columns by some of you. In fact, it will be referenced
in a book soon:

Dear Mr. Holliday,

I am an American law professor writing a book on women
in combat. I have been reading some of the leadership
literature and came upon your column from last year
entitled "Born Leaders." I thought your column had more
wisdom in it than 99% of the academic literature. If
you have no objection, I would like to quote the excerpt
below in my book.

Best regards,
Kingsley Browne

{I
didn’t add the excerpt, but it was the part about
employees being able to smell a bad leader.}

In
a follow-up to that column, which was oriented very much
as a lecture on leadership, I wanted to look at the same
issue again solely from the eyes of investors. I have
been asking those in my industry and those that invest
(angels) about the criteria that they want to see in a
“backable” CEO and more specifically, what they have
learned through good and bad experiences in trying to
identify the right person.

The biggest issue we face is that we see great
technology opportunities and large market opportunities,
but experience (usually bad) has taught us that the
number one factor is whether the management team, mostly
the CEO, has the strategic and tactical capability to
take the idea to the moon. Can this person in front of
you hit it out of the park when they have never done so
before? Forget the Paul Terry, Adam Lorant, John
Seminerio threesome that has done it twice already.
That’s a no-brainer. I’m talking about the bright-eyed
entrepreneur with no start-up-to-the-moon track record.

First, some legendary anecdotes about backing a CEO with
no previous proof of capability:

Arthur Rock invests $60,000 in Apple after meeting Steve
Jobs and attending the Home Brew Computer Show in San
Jose, seeing the wild-eyed enthusiasm of the computer
crowd around Apple’s booth (1977). Rock would say that
he had his doubts in the first meeting with the
un-shaven, sandal wearing guy whose diet at the time
consisted entirely of fruit. Jobs’ first business plan
called for $500M in revenue in ten years. He had never
run a company before. To be honest, Rock based his
decision to invest on Mike Markkula, Apple’s first angel
investor and former Intel executive who would help them
with marketing. But he did see the un-believable
passion in Jobs and considered the support he had around
him and bought in. By the way, they reached $500M in
sales in 5 years.

From John Battelle’s new book about Google, “The
Search”: In August 1998, Larry Page and Sergei Brin sat
on the porch of a Stanford professor’s house and showed
Andy Bechtolsheim (founder of Sun, among others) their
search engine. Andy asked them a bunch of questions and
then said “‘Well, I don’t want to waste time. I’m sure
it’ll help you guys if I just write a check.’” He
headed to his car to get his checkbook and Brin and Page
were left to figure out a) at what valuation and b) who
to make the check out to because they didn’t have a
company yet. Andy was acting in the true angel investor
spirit and, to be truthful, was focused on the
technology opportunity rather than the team in front of
him. But his decision to back these guys sprung from
the fact that others had backed him, Bill Joy and Vinod
Khosla in the early 80’s to start Sun Microsystems after
none of them had started a successful business to that
point. Good decision. Based on the valuation discussed
that day and subsequent dilution in the VC rounds, if
Andy was still holding all of his stock, it would be
worth about $10B today.

Of
the conversations I have had around BC recently, the
best term I heard about how to recognize whether a
person could be a winner, even without proof at the
start-up level, was “vaulting ambition”. Passion is
critical, but having that passion tied to huge ambition
seemed to be the right formula for a venture type of
bet.

My
favourite pop-culture reference to “vaulting ambition”
would be Plankton from the Sponge Bob Squarepants
cartoons. For those of you without the 8-16 year
demographic in your house, Plankton is, well, a plankton
with a huge booming voice and massive ambition to be the
leader of the underwater world, via his restaurant, the
Chum Bucket. In essence, he is the evil figure and
nemesis of Sponge Bob. He is convincing, despite his
stature. He persuades those around him and inspires
their loyalty. He has big dreams and even bigger drive
to deliver the goods. Alas, bumbling SpongeBob always
de-rails him, but that part doesn’t fit my analogy…

Simply stating your ambition is not enough to qualify.
In the absence of proof of previous success, qualifying
the ambition with solid analysis, strategic insight and
a believable implementation/operational plan… that is
what impresses. You may say you will do $500M in ten
years (everyone does), but the investor sees the
ambition, hears the plan and believes. Plankton, but
with a plan. Angels will write the check right then and
there.

Institutional investors need to go back to their group
and convince them that this is a person to back. What
you want them to say around the board room table back at
their office is that the entrepreneur “gets it” and
clearly has the ambition to drive it forward. You want
them to say, “I know they haven’t done it before, but
this guy’s/gal’s a winner. I can feel it.” They will
have to justify backing the entrepreneur without
experience and you can help them do that by surrounding
yourself with good advisors, board members and other
team members that have been through start-ups before.

Far too often, we (the investors) make mistakes… but
that is the game we play. We bet on the wrong people or
the wrong technology or the wrong market. Our successes
have to make up for those mistakes (and more). In the
downturn, we started to equate failure with
inexperienced CEOs. We have equated mediocrity with
failure to execute by our management teams. In some
cases, this is true, in others, circumstances got in the
way. The unfortunate by-product of these painful
lessons is that we don’t give the un-proven entrepreneur
a chance.

To
help make the decisions, some institutions use HR
professionals to quantify the characteristics of
un-proven CEOs to see if they match up with successful
entrepreneurs. Some investors choose to stay with their
“gut”. Either way, it is incumbent upon all investors
to recognize deficiencies that might come from
inexperience and decide if the opportunity is worth the
effort to manage them. That’s the key folks… we can
look at inexperienced entrepreneurs if the opportunity
is exceptional. Once again, an anecdote for this is Don
Valentine’s initial investment in Cisco where the
founders were a husband/wife team that everyone else had
rejected (basically everyone thought they were nuts).
He was willing to work with and around them because of
the opportunity he saw.

Now there are plenty of good business opportunities to
make some money that don’t require an entrepreneur with
“vaulting ambition”. Operational skills to execute a
plan successfully can exist without Plankton-like
ambition. Frankly, only the big opportunities need that
kind of energy and drive. I heard plenty of examples
where entrepreneurs may have lacked start-up experience,
but turned their skills learned in other environments
into decent companies. But there was consistent theme
among the big winners…

Perhaps I can give you, from my very un-scientific poll
of investors in BC, my Plankton Hall Of Fame for those
entrepreneurs among us who may not have been there
before, but whose backers recognized the “vaulting
ambition” to be enormous and they succeeded (feel free
to send me others who you think may fit. I surely will
miss some as I did not survey everyone):

Amos Michaelson - Creo

Dick Hardt - ActiveState

Don Mattrick – Distinctive Software

John MacDonald – MDA

Norm Francis – Basic Software Group

Geoffrey Ballard – Ballard Power

David Sutcliffe – Sierra Wireless

Not every on of these was the founder, but without a
huge success in their background for an investor to
latch onto, they inspired investors to bet on their big
idea and then succeeded. For each Plankton listed
above, there are ten who had the big idea and the
ambition, but failed. But it should not stop us from
recognizing the “type” and backing them. It would be a
shame to miss one.

I
look forward to your comments.

Letters From Last Time –

Wading into the debate about Web 2.0, as I did last
time, and delivering an argument that it is not a
revolution, but an evolution did cause me some grief
among the “technorati” that have adopted Web 2.0
techniques. First, there was the
blogs (for instance) making fun of my Web 1.0 column
and manipulating Google search results on my name.
Then, there was the VEF event on October 25th,
where they mocked my response and my Google “identity”
in front of a few hundred colleagues. (BTW, Nick and
Dick should be commended for the best VEF event I have
been to in 12 years of attending!!!) All of this
reminded me of the apprehension I had writing the column
in the first place… that writing on the web somewhat
negatively about people that seem to be permanently
attached to the web and, therefore, are zealous about
its apparent transformation… well, let’s just say it was
like standing in front of a Klu Klux Klan rally and
telling them that their pillow case hats look
ridiculous. Burning crosses on my lawn would be just
the start of my problems…

Here is what others said in response to my column:

Once again you hit this one dead on Brent.

All these opportunists are looking to make a new play
with other folk's money. ("It’s different this time!")
If it was this easy to make a buck in investing then
value investors would not have a play. I am willing to
wait to see this play out.

Reg

Hi
Brent,

Not sure if you remember me but I used to run Helix
Internet, one of the first ISPs (since then I have been
running various ISP/Hosting companies sales & marketing
- the latest Superb Internet). - but finally got burnout
out on the "much ado about nothing" aspect of the
Internet and Web 2.0 is just another example so finally
hung up my shingle.

Anyways well said and agreed "their time is up"!

Cheers,

Curtis

Brent:

…should be an interesting event on Tuesday – I’m already
exhausted with this 2.0 crap. Yes, my newsletter has an
RSS feed, I regularly read blogs (here’s
a good posting), we’ve even sent out a few Podcasts. The
technology is wonderful, but I’m not impressed by Flickr
shots of what’s in someone’s briefcase. I’ll leverage
some if it makes me more effective, but the earth is
still gonna be tilted the same way. Shouting louder
doesn’t make the message any clearer for those that are
still waiting to hear the real point.

Had lunch yesterday with a few peers, and reveled in all
the senses of rich intellectual interaction and good
food (and not blowing my eyes out in front of 2 computer
screens simultaneously).

…wonder how many “Web 2.0 Kool-aid” tickets could be
sold at Tuesday night’s event? Could be a great
fund-raiser for a local charity – I’d certainly be in
for $5… ;-)

Nice article.

Regards,

Jim

Hi
Brent

I
wish you would add RSS and trackbacks to your column.
Not sure why you and Mike have not shifted this to a
blog format, it would help to build the local community
if you did so. Anyway …

Regardless of the hype factor of Web 2.0 and its
relevance in making investment decisions (something I
will leave to you), the key patterns that O’Reilly
identifies are useful and we certainly use them to shape
strategy at Recombo.

Services, not packaged software, with cost-effective
scalability

Key business principle of the Recombo Connector,
which provides integration middleware as a service

Control over unique, hard-to-recreate data sources
that get richer as more people use them

Every time a user adds a content type to the
Connector this enriches our ability to handle new
content types

Collections of competency models mapped against
content catalogs are a growing part of our revenue
stream and we are working to turn this into a
Connector service, our IP is the mapping and not the
competency model or the content

Every time we touch a web service we catalog and
represent it for future integrations

Trusting users as co-developers

Our users tend to be other companies and we are
deeply engaged in web services development – our
goal next year is to open this up so that Recombo
becomes an open repository for web services

Harnessing collective intelligence

This is what is happening with the content types,
the competency to catalog mappings and from next
year with the web services

Leveraging the long tail through customer self-service

Need to work on this

Software above the level of a single device

What middleware as a service enable

Lightweight user interfaces, development models, AND
business models

See comments on REST vs. Web Services stack.

The REST vs. Web Service debate is also something we
struggle with. Our current system is a mix, RESTful
where possible and web services based where a tighter
enterprise style integration is necessary. It is going
to be a technical and strategic challenge to manage this
properly.

Anyway, I hope you are stimulating thought and
discussion in the local business and investment
community. Any chance of getting other local VCs to
publicly comment on Web 2.0 – guess I should go to the
Financing Forum to hear about this.

Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
myself, thanks).